CANBERRA OBSERVED: The Abbott government's economic dilemma

by our national correspondent

News Weekly, February 15, 2014

Over time, the decision by the Abbott Cabinet to deny SPC Ardmona $25 million in government support was more about shoring up the government’s reputation for flinty frugality than about charting a clear economic course.

Certainly, Treasurer Joe Hockey’s Cabinet win was lauded as a “triumph” for the pro-market tendency within the new government and the final nail in the coffin for interventionist-style government.

The SPC decision would mark the end of propping up any “uncompetitive industries”, commentators declared.

What this means for the billions that are already given to business in the form of grants, tax breaks and other forms of assistance is still not clear.

Subsequently, Mr Hockey declared, “the age of entitlement is over and the age of personal responsibility has begun”, meaning that no one had the automatic right to expect money from government.

Certainly, there are powerful elements within the government who saw the decision in this light.

However, the realities of government will be the true test for this new-found purist approach to running the national economy.

A larger part of the decision was Mr Hockey’s need to assert his own authority, which had taken a battering from successive decisions (mainly by Mr Abbott in the lead-up to the election) to declare certain budget items off-limits to cuts.

The complete cave-in on the Gonski schools funding to the states made Mr Hockey’s budgetary work harder again.

The government had also been sending contradictory signals — a prime example being the giving of a $16 million election handout to Cadbury’s in Hobart for chocolate tours.

Mr Hockey also had to accept with reluctance the decision to block the acquisition of Australia’s GrainCorp by U.S. food giant Archer Daniels Midland (ADM). Without this decision there would have been a revolt from Nationals and regional Liberals.

SPC was therefore for Mr Hockey a watershed moment for asserting his authority as Treasurer.

With the formulation of the May Budget in full swing Mr Hockey could not afford to be seen to be “giving money away”, least of all to Coca-Cola Amatil.

Prime Minister Tony Abbott argued afterwards that it was difficult to justify giving a massive multinational company any kind of handout in the current budgetary climate.

He also argued that Coca-Cola Amatil, which had taken over SPC in 2005, had known what it was getting in for when it bought the business.

Indeed, Coca-Cola Amatil, which runs SPC Ardmona, is in turn 29 per cent owned by the Coca-Cola Company — the soft drink behemoth which has international annual revenues of $US48 billion.

Even in Australia, Coca-Cola Amatil makes around $500 million a year net profit a year.

But all this is irrelevant to the 750 remaining processing-workers, the orchardists and other suppliers in Victoria’s Shepparton region who face the prospect of losing their jobs and having their fruit trees bulldozed should the SPC facilities be shut down.

SPC has been battling the effects of Australia’s high dollar, the consequent flood of cheap imports and the changing tastes of Australians who simply do not buy canned fruit as much as they used to. Last year, the SPC Ardmona factory lost money.

The company itself also appears to have badly managed its workplace relations and allowed itself to be coerced into paying exorbitant labour costs and allowances.

The problem for the Abbott government is that it has yet to lay out its vision of where Australia is heading, and what sort of economy we should be aiming to be as the mining boom winds down.

If there is to be a gradual winding down of manufacturing in Australia, what sort of economy will there be left in Australia? Will there be no guiding hand of government at all?

Perhaps we will see what the future holds in the May Budget.

In the meantime, the government should be hoping that SPC will remain a going concern and that Coca-Cola Amatil (ironically with assistance from the Victorian government) will manage to bring down costs and keep its operation profitable.

If the business does fail, the cost to government will be far greater than the $25 million it was being asked for.

Government outlays will be needed to help redundant workers retrain or at least to provide them with income support if there are no more jobs. The local Shepparton economy will be hit, and perhaps another independent MP will be elected in northern Victoria.

If SPC is a symptom of a deeper malaise in Australia, with the remedy including a major structural adjustment, the government must develop a plan and communicate that plan.

Leaving everything to the invisible hand of the market works well in theory, but on the ground it is a different story.